Court Says HealthSouth Loss Was Underestimated

Judge Told to Resentence Former Executive

BIRMINGHAM, Sept. 28 -- A prosecutor said Tuesday that the government won't seek more prison time for a former HealthSouth Corp. executive to be resentenced after serving five months for fraud.

U.S. Attorney Alice H. Martin's decision not to seek a harsher sentence for former assistant controller Emery W. Harris came after the U.S. Court of Appeals for the 11th Circuit ruled that a judge erred in computing the amount of money Harris cost investors in the scam.

U.S. District Judge Inge P. Johnson sentenced Harris to five months in prison in December after finding that his part in the $2.7 billion fraud cost shareholders $66 million, compared with the $328 million suggested by prosecutors. Harris completed his prison term in June and is now serving five months of house arrest.

The government appealed Johnson's sentencing decision, and the 11th Circuit last week agreed that Johnson used the wrong formula in coming up with the lesser amount. It ordered Johnson to resentence Harris. The appeals court also said Harris should be treated as a manager of the white-collar crime.

[A spokeswoman for prosecutors told The Washington Post yesterday that the appeals court decision could affect not only Harris's sentence, but also the sentences of four other HealthSouth subordinates who pleaded guilty and whose cases were consolidated with Harris's on appeal. None of the other four defendants was sentenced to prison.]

While Martin said her office did not intend to seek more time for Harris, she said the ruling set a precedent for former chief executive Richard M. Scrushy and other HealthSouth executives accused in the fraud.

"This decision is a victory for the victims of the HealthSouth corporate fraud," Martin said.

Twenty former HealthSouth executives have been charged since the government sued 1 1/2 years ago alleging a scheme to overstate corporate earnings. Sixteen were accused of participating in the fraud, and four others were charged with related bribery.

Of 10 former employees sentenced so far, only Harris went to prison. Others received a combination of fines, probation or house arrest.

Scrushy is free on $10 million bond awaiting trial, which is scheduled to begin in January. Harris, who pleaded guilty and is cooperating with prosecutors, is among the former HealthSouth workers expected to testify against Scrushy.